Going Solar Can Lower Your Overhead and Increase Your Bottom Line

Did you know…

Not only will the Federal Government give you a tax credit, but you can also write off a majority of the systems cost year one when you file your taxes. As for accelerated depreciation, qualifying solar energy equipment is eligible for a cost recovery period of five years. For equipment on which an Investment Tax Credit (ITC) the owner must reduce the project’s appreciable basis by one-half the value of the 30% ITC. This means the owner is able to deduct 85 percent of his or her tax basis.

“Depreciation” is the loss of value that occurs over time when the object purchased is used for a specific use. As a business owner, you are eligible to deduct this “loss in value” from your taxable income when used for your business. If you are running a profitable business, and you can show that the solar power you are generating is for business use (as opposed to personal use), then it may have a strong impact on increasing your bottom line.

For our calculations, we assume that our clients maintain a 30% tax rate. Your personal rate will likely vary. Understanding which portion of your solar investment is eligible for depreciation is important to know.

SAMPLE OF DEPRECIATION BENEFIT – 5 YEAR MACRS TABLE

These numbers are based off the $100,000 solar energy project. Please remember the 1) taxable basis is reduced by half of the 30% Investment Tax Credit and 2) this process repeats each year using a different percentage.

 
MACRS Accelerated Depreciation, 5-Year TableMACRS Accelerated Depreciation, 5-Year Table

Bonus Depreciation on Solar Panel Projects Explained

Under 50% bonus depreciation, in the first year of service, companies could elect to depreciate 50% of the basis while the remaining 50% is depreciated under the normal MACRS recovery period. You must have the solar project in service before January 1st, 2018  to claim the 50% bonus depreciation. After 2018, the percentage sunsets to a lower rate. See below;

  • Before 1/1/2018 – 50% Bonus Depreciation

  • During 2018 – 40% Bonus Depreciation

  • During 2019 – 30% Bonus Depreciation

In the first year claiming the 50% Bonus Depreciation, you will then reduce your post-ITC basis by half – $85,000 to $42,500 – before applying the normal MACRS depreciation rate. In Year One you will gain an addition $8,500 in depreciation ($42,500 x 20% = $8,500). After year one, you will continue to apply MACRS rates to the remaining half of the basis ($42,500 x 32% =$136,000 and so on…)

MACRS Bonus Depreciation, 5-Year TableMACRS Bonus Depreciation, 5-Year Table
 

Be sure to consult a licensed tax professional for advice, tax guidance, and any updates that may apply. Each situation is different, we are not tax professionals. This information is designed to help educate and is in no way legal advise. We are not liable for any income tax related problems